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Growth of Franchising

Singer Sewing Machine first franchise(mid-19th century)

Automobile (e.g. Ford), petroleum products(e.g. Shell), soft drinks (e.g. Coca Cola)

Food and restaurants (e.g. McDonalds,

Starbucks)

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Franchise

A business that uses the name, logoand trading systems of an existing

successful business

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Franchising

Franchising

A marketing system revolving around a two-partyagreement, whereby the franchisee conductsbusiness according to the terms specified by the

franchisor

Franchisee

The person who purchases the franchise.

Franchisor The person offering the franchise.

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When to Franchise?

When Is Franchising Most Suitable?

Franchising is most suitable when a firm has a strong or

potentially strong trademark, a well-designed business method.

A franchise system will ultimately fail if the franchisees brand

doesnt add value for customers and its business method is

imperfect or poorly developed.

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Advantages of Franchisingto theFranchisee

Product acceptance - Has an accepted name,product, or service.

Management expertise - Managerial assistance

provided by the franchisor.Capital requirements - Up-front support can save

entrepreneur significant time and capital.

Knowledge of the market - Offers experience in

business and market.Operating and structural controls Helps in

standardization and administrative controls.

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Advantages of Franchisingto theFranchisor

Expansion risk

Allows venture to expand quickly using little capital.

Business can be expanded nationally and eveninternationally.

Requires fewer employees than a non-franchisedbusiness.

Cost advantages

Supplies can be purchased in large quantities toachieve economies of scale.

Ability to commit larger sums of money to advertising.

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Disadvantages of Franchising

Initial Cost

The money youll have to obtain to start a franchise canbe quite unreasonable.

Strict Guidelines

These restrictions can limit how you can advertise, whatyou must charge for the products you sell, and howmuch of an element you can put on a food product.

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Lack of Guidance and Support

Most larger companies offer prosperity of support andaccess to resources, but smaller companies may not.

Unending Royalty (Fess) Payments

When they sell franchise rights, they earn a royalty oneach store. Its up to the franchise owner to make these

royalty payments.

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Types of Franchises

Dealership

Acts as a retail store for the manufacturer.

Franchise that offers a name, image, and method of

doing business. Franchise that offers services -

Single Franchise Owner

Owns the franchise rights to operate in just onebusiness location or region

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Product and Trade Name Franchise Grants the right to use a widely recognized product or name

(i.e. gas stations)

Business-Format Franchise Provides an entire marketing system and ongoing guidance

from the franchisor (i.e. fast-food)

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Multiple-Unit Ownership Holding by a single franchisee of more than one

franchise from the same company

Area Developers Individuals or firms that obtain the legal right to

open several franchised outlets in a given area

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ACQUISITION

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Acquisition

A transaction where one firms buys another firm with theintent of more effectively using a core competence bymaking the acquired firm a subsidiary within its portfolio

of business It also known as a takeover or a buyout

It is the buying of one company by another.

In acquisition two companies are combine together to

form a new company altogether.

Ex. Reliance HDFC bank acquisition of Centurion Bankof Punjab in $2.4 b New Name: HDFC bank,Vodafone Acquired 52% in Hutch Essar in $10 b NewName: Vodafone Telecommunication ltd.

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Why is important

i. Increased market share.

ii. Lower risk comparing to develop newproducts.

iii. Serve the customer better.

iv. Increased diversification

v. Avoid too much competition

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Advantages of an Acquisition

Economy of Scale.

Reduced firm risk through diversification.

Limit competition

Cost reduction. Resources increase.

More opportunity to be creative.

Tax benefit.

Increase market power.

Introduction to new technology.

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Cultural differences.

Failure to join together well.

Customer services.

Job losses.Raise conflict between the employees.

Marginal success record.

Overconfidence in ability.

Key employees loss.

Over evaluation.

Disadvantages of an acquisition

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